The Securities and Exchange Board of India has put the brakes on foreign mutual funds tapping domestic Indians who are now permitted to invest up to $25,000 in the overseas markets. Foreign banks operating in the country are marketing their offshore funds to Indians.

HSBC India has been the first to market the group's offshore funds in the country, to be followed soon by Citibank.

The Reserve Bank of India has allowed Indians to invest overseas without specifying any guidelines, except for capping the annual investment at $ 25,000.

The market watchdog, on the other hand, proposes to come out with detailed guidelines and clarity on allowing foreign funds to market their schemes in the country.

According to current regulations, these funds cannot be marketed as they are not registered in the country. At the same time, HSBC is marketing its offshore funds from Jersey in Channel Islands (the United Kingdom), which, said the bank's spokesperson, has been received well by resident Indians.

The Sebi decision comes in the wake of some foreign funds -- not registered in India -- making a direct sales pitch to Indian investors. Sources said the markets regulator is expected to come out with detailed guidelines to provide clarity on the contentious issue of foreign investments within the next two months.

After the Reserve Bank of India permitted resident Indians to invest up to $25,000 overseas annually, a host of domestic mutual funds set up schemes specifically aimed at investment overseas. At the same time, overseas funds started selling their wares in India.

But problems cropped up because Sebi's existing regulations do not cover such investments. Specifically, the regulations are silent on who can apply for units of overseas funds.

Sebi sources clarified that though the mutual fund regulations do not actually bar such investments, the treatment of it is not clear. This lack of clarity prevents mutual funds from marketing their overseas funds in India.

However, some fund houses such as HSBC Asset Management India and Principal Mutual Fund have introduced offshore products.

Merrill Lynch, like its various other foreign counterparts, is keen to tap the new opportunities opening up in the country in terms of foreign remittances by Indians.

While it is keen to offer its Luxembourg umbrella funds comprising 51 schemes with total assets of $22 billion, it is awaiting the markets regulator's detailed regulations before it can market products domestically, said Merrill Lynch Investment Manager's managing director David R Graham, in charge of the European, Middle East, Africa and Asia Pacific markets.

Principal was among the first to tap the market, but instead of bringing in its existing offshore suit of funds, the fund house had to launch a specific fund to tap domestic investors keen to diversify their investment basket.

HSBC, on the other hand, has already introduced its range of offshore mutual funds from Jersey in the Channel Islands (UK), allowing the domestic investors to diversify their equity and bonds portfolio in terms of geography, said HSBC head of wealth management Vijay Venkatram.